PSA Japan Weekly Research Round-Up (for the week ending Aug 17, 2018)

 The Weekly Comment by Pelham Smithers
We are now past the quarterly results period and entering that time when the focus generally is on macro issues. Monday and Tuesday next week see the release of various types of retail sales figures, while Thursday has the August PMI. However, it’s Friday’s CPI number which is likely to be the most watched as there’s a good chance that this gaps up – with implications for inflation and monetary policy.
 Reports / Flash Notes Summaries at a Glance
1. Nabtesco (6268 JP) Outlook: Slower Growth but Value Support
2. Suzuki Motors (7269 JP): Increasing Downside Risk in India
 Company / Sector / Thematic Comments at a Glance
1. Shares in Capcom (9697 JP) Slump as China Pulls Monster Hunter
2. China’s Video Game Approval Freeze
3. Panasonic (6752 JP) to Sell Tesla Solar Cells to Third Parties
4. Ricoh (7752 JP): What Next?
5. Bitcoin Below US$6,000, Gold Below US$1,200
6. Silicon Wafers – No News is Bad News
7. Sumitomo Chemical and Nissan Chemical’s Roundup Relations
8. Skylark’s (3197 JP) Environmental Step – The Last Straw
9. Auto Sector Under Pressure on Currency Concerns
10. Mitsubishi Motors (7211 JP) Sales Booming in ASEAN Markets
11. Will New Models Help Subaru (7270 JP) in the US?
12. Ferrotec (6890 JP) Drops Despite a Good Q1
13. Nikkei Write-up on Robot Gear Makers Sees Nabtesco (6268 JP), Harmonic Drive (6324 JP) Hit 52-Wk Lows
14. SoftBank (9984 JP) to Shun Tesla (TSLA US)?
15. Nexon (3659 JP) Hit by China’s Game Industry Crisis
16. Recruit’s (6098 JP) FY18 Q1 Beats Consensus Estimates
17. Mercari (4385 JP) Closed FY18 on a Sour Note
18. Start Today (3092 JP): ZOZO is catching on
19. Cyberdyne (7779 JP) FY18 Q1 Disappoints
20. Economic Data Continues to Point to Monetary Policy Shift
21. What the Market Likes, What it Doesn’t
PSA Company Visits, Tours and Interviews
• Visited: JSR (4185 JP), Hoya (7741 JP), Sumco (3436 JP), Asahi Kasei (3407 JP), Toray (3402 JP), Ube Industries (4208 JP), Daikin (6367 JP)
• Attended earnings meetings at: Scala Inc (4845 JP)

Weekly Market Comment by Pelham Smithers
It is a little flippant to say that the last month has seen investors focusing on results given the impact macro issues such as the Turkish Lira and the US / China trade dispute have had. However, we are now past the quarterly results period and entering that time when the focus generally is on macro issues. It is too early in the quarter for analysts to be able to gauge how well companies are doing, while the companies themselves have little more to add than what was already indicated at the recent results meeting. Individual news stories can have a significant impact, but for that to happen they have to be unpredictable / unpredicted, so betting what will / won’t happen on the corporate front is usually pretty futile.
However, the second half of the month brings a steady stream of economic news and while sometimes this can pass in a haze, that’s probably not going to be the case with some of the data out next week. Monday and Tuesday see the release of various types of retail sales figures, while Thursday has the August PMI. However, it’s Friday’s CPI number which is likely to be the most watched as there’s a good chance that this gaps up to 1.0%. In July 2017, the CPI fell 0.2% MoM, which means that it is a relatively easy base of comparison, and with the PPI shooting up last month, there’s a good chance that some of that already found its way into CPI numbers. Our view is that it will just fall short (0.9% YoY), but if it is 1% or more, that’ll attract attention. Likewise, the July retail sales numbers are going to be interesting. June’s were good and the recent wage data suggests that June bonuses were significantly better than last year, which may well be reflected in consumption figures.
Normally, you have to be very wary of focusing too heavily on individual data points in Japan. It is not that the series are excessively volatile but more that we are always dealing with such small increments that rounding can become an issue. The difference between CPI being at 0.94% and 0.95% means the difference between the published figure being 0.9% and 1.0%, so focusing too heavily on one point can often mean seeing a different story than actually occurring. However, this time is different, because Japanese monetary policy is on a knife edge. The difference between 0.94% and 0.95% should not matter, but in this instance it could. This is not to say that the BoJ will suddenly tighten the taps if CPI hits 1.0%, but it is likely to bring the debate to the fore if it does. From the -1% inflation rate we were at when all this began, we would be two-thirds of the way to the 2% inflation target at that point. However, it should also be noted that there’s a growing body of opinion, which thinks that Japan doesn’t need to target 2% inflation, because the economy is doing perfectly well as it is. Current economic performance and 1% inflation is inarguably better than current economic performance and 2% inflation, so why push to get inflation to 2% on the off-chance that the economy can do even better than it is today?